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Analysis of Insurance Industry Of India Flipbook PDF
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Analysis of insurance industry of India
Palak mathur
contents o o o o o o o o o o
Meaning of Insurance Definition of Insurance History Of Insurance Insurance Markets Types of Insurance Assurance and Insurance Vital Characteristics of Insurance Limitations of Insurance IRDAI Analysis of the Industry
MEANING OF INSURANCE Insurance is one of the ways that businesses and individuals reduce the financial impact of a risk occurring- by paying a premium to an insurance company, the risk is in effect transferred from the client to the insurer, meaning the client can focus on their business or life. Without insurance, their would be no risk taking. And without risk taking, their would be no businesses and innovation. Insurance is what enables the modern world to get on with life. And it’s everywhere. It’s also big business. In fact, it’s one of the biggest. In terms of careers, the sector offers a truly remarkable range and diversity of opportunities. You can enter specialist career streams or join the profession through a host of highly rated graduate schemes with some of the most prestigious names in finance.
Definition of insurance The term “Insurance” has been outlined by totally different specialists on the topic. The views by them are classified into 3 subsequent classes for the convenience of study: 1. The General Definition- These are given by the social scientists and that they take into account insurance as a tool to protect against risks, or a provision against inevitable contingencies or a cooperative device of spreading risks. 2. The Functional Definition- These are supported economic or business headed since it’s a tool providing monetary compensation against risk or misfortune. 3. The Written Agreement Definition- These definitions take into account, insurance as a contract to indemnify the losses on happening of bound contingency in future. It’s a written agreement relationship to secure against risks.
History of insurance Insurance in this current form has its history dating back to 1818, when Oriental Life Insurance Company was started by Anita Bhavsar in Kolkata to cater to the needs of European community. The pre-independence era in India saw discrimination between the lives of foreigners (English) and Indians with higher premiums being charged for the latter. In 1870, Bombay Mutual Life Assurance Society became the first Indian insurer. At the dawn of the twentieth century, many insurance companies were founded. In the year 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance business. The Life Insurance Companies Act, 1912 made it necessary that the premium-rate tables and periodical valuations of companies should be certified by an actuary. However, the disparity still existed as discrimination between Indian and foreign companies. The oldest existing insurance company in India is the National Insurance Company, which was founded in 1906, and is still in business. The Government of India issued an Ordinance on 19 January 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. In 1972 with the General Insurance Business (Nationalisation) Act was passed by the Indian Parliament, and consequently, General Insurance business was nationalized with effect from 1 January 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commenced business on 1 January 1973.The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. Before that, the industry consisted of only two state insurers: Life Insurers (Life Insurance Corporation of India, LIC) and General Insurers (General Insurance Corporation of India, GIC).
Insurance markets Insurance can be broken down into two types of markets. Although there are differences, the theme is the same: both are concerned with offering financial protection against unforeseen events. You will find similar career opportunities in both the markets, although the job title, working environment and the salary may differ. The key distinctions between the markets are often the type of customer and the sum of money involved. 1. The Wholesale Market focuses mainly on the London Insurance Market, which comprises the syndicates operating in Lloyd’s of London together with the London offices of a number of the UK and International insurance companies. 2. The Retail Market is what most people understand by insurance and comprises the companies that we see advertising on the high street and the internet. It deals with types of insurance that the general population need for their car, house, travel or pets and also arranges pensions and life cover.
TYPES OF INSURANCE There are generally three categories of insurance, which can happen across both or just one of the insurance markets. 1. General Insurance provides protection for damage that may happen to our belongings, viz cars, houses, jewellery, or for any harm that may come to us during particular events such as holidays or sports activities. General insurance occurs in both retail and wholesale market. 2. Life Insurance refers to financial cover for individuals in the event of their death or illness, therefore providing financial security for their family. Life and critical illness cover provide security for those who have mortgages. Life insurance occurs mostly in retail market. 3. Reinsurance is when an insurance company arranges insurance for a risk that they have already insured themselves. The insurance company becomes the “insured”, and the reinsurance company becomes the “insurer”.
LIFE INSURANCE
GENERAL INSURANCE
REINSURANCE
Assurance and insurance S.No
Basis of Difference
Assurance
Insurance
1
Scope
Used only in life insurance and so, scope is comparatively limited.
Used for all other types of insurance and so, scope is comparatively wider.
2
Element of Investment
Present here
Absent here
3
Certainty of Payment
There is certainty of payment on death or maturity of policy in assurance.
There is no certainty of receiving payment in insurance but amount is paid only in case of loss of the property insured.
4
Receiving Payment Renewal of policy
Assurance does not provide such facility.
Contract remains and does not lapse unless premium is regularly paid.
5
Certainty of Event
Happen sooner or later
Happen or not
6
Insured Sum
Insurance for any amount or any number.
Amount is restricted to market value of insured asset.
VITAL CHARACTERISTICS 1. Sharing of Risk 2. Analysis of Risk 3. Payment of happening of nominal event 4. Quantity of payment 5. Insurance isn’t charity 6. Transfer of Risk 7. Based mostly upon bound principle
8. Institutional setup 9. Wide Scope 10. Regulation beneath the law 11. Insurance for pure risk solely 12. Ascertaining of losses 13. A contract 14. Social Device
LIMITATIONS 1.
2. 3. 4.
5.
All risks cannot be insured. Solely pure risks are insured and speculative risks don’t seem to be insured. In case the loss arises from the happening of the event and cannot be valued in terms of cash, such risks don’t seem to be insured. Insurance isn’t a profitable investment. Its main object is to produce security against risks; insurance business cannot be a supply to amass profits. It becomes troublesome to regulate ethical hazards in insurance. There is a unit bound folks that mystifies the insurance plans for his or her self-interest by claiming false claims from insurance companies. Certain such risks are insured with cooperation of government only; like state insurance, food insurance, etc.
IRDAI In 1997, The Insurance Regulatory Authority (IRA) was established. The passing of the Insurance Regulatory & Development Act, 1999 (IRDA) led to the formation of Insurance Regulatory and Development Authority Of India (IRDAI) in April 2000 as a statutory regulatory body both for life, non-life and health insurance industry.
Regulations:On July 14, 2000, The Chairman of IRDA, Mr. N. Rangachari set forth a set of regulations in an extraordinary issue of the Indian Gazette. They are: 1. The first covers the Insurance Advisory Committee that lightens upon the rules and regulation regarding the functioning of the insurance sector.
2.The second stated that the “Appointed Actuary” should be a fellow of the Acturial Society of India. 3.Third, the appointed actuary would be held responsible for reporting of a detailed account of the company to the IRDAI. 4. Fourth, the minimum qualification for insurance agents is least a high school diploma along with training of 100 hours from IRDA recognized institutions. 5. Fifth, The IRDA has set up strict guidelines on asset and liability management of the insurance companies along with solvency margin requirements.
6. Sixth, the disclosure requirements have been kept rather vague. 7. Seventh, all the insurers are forced to provide some coverage to rural sector.
analysis INSURANCE INDUSTRY OF INDIA
We live in a world of uncertainty, where we hear about trains colliding, floods destroying entire communities; earthquakes that bring grief and young people dying suddenly pre-maturely. The reason is simple; Firstly these events are unpredictable. If we can anticipate and predict an event, we can prepare for it. Secondly, such unpredictable and untoward events are often a cause of economic loss and grief. The idea of insurance took birth thousands of years ago. Yet, the business of insurance, as we know it today, goes back to just two or three centuries. The Oriental Life Insurance Co. Ltd.
The first life insurance company to be set up in India was an English Company.
Triton Insurance Co. Ltd
The first non- life insurer to be established in India.
Bombay Mutual Assurance Society Ltd.
The first Indian Insurance Company. It was formed in 1870 in Mumbai.
National Insurance Company Ltd.
The oldest insurance company in India. It was founded in 1906 and it is still in business.
The Life Insurance Industry of India services the largest number of life insurance policies in the world. Till the privatisation of insurance sector in the year 2000, Life Insurance Corporation was the only life insurer in India enjoying 44 years of monopoly. LIC is the largest Financial Institutional Investor in the country with an investment of Rs. 6,74,475 crores. Its new business gets doubled every three years. Even in competitive scenario, LIC has registered the world’s highest growth rate, creating history in the insurance sector.
In India, Insurance sector has not only been playing a leading role within the financial system but also performs a significant socio-economic function, making inroads into the interiors of the economy. It has also been facilitating economic development with an objective to build an efficient, effective, and a stable insurance business in India as well as a strong base to cater to the needs of both the real economy and socio-economic objectives of the country. It has seen a major growth in the last decade along with an introduction of a huge number of advanced products. This has led to a tough competition with a positive and healthy outcome. Changing needs of Insured: Customers of today are better educated, better informed, more selective, and highly individualistic. In respect of life insurance, potential buyers are driven to buy a policy for one or more times for three major reasons; covering the risk, saving for one or more specific purposes, and availing tax benefits. The challenge of insurance companies is to address the motivating factors imaginatively and come up with genuine solutions. The opening up of the market has certainly ensured that the competitive nature of business has improved the efficiency levels in customer service. But, it has not reached a stage at comfort. There is an immediate need for taking on problems an analyzing the deep-rooted reasons for the same.
Role played by Insurance in the Society: Insurance companies play an important role in a country’s economic development. They are contributing in a significant sense to ensuring that the wealth of the country is protected and preserved. Some of their contributions are given below: 1. Their investments are seen to benefit the society at large. 2. These funds are collected and held for the benefit of the policyholders. 3. The system of insurance provides numerous direct and indirect benefits to the individual, his family, to industry and commerce and to the community and the nation as a whole. 4. Insurance removes the fear, worry and anxiety associated with one’s future and thus encourages free investment of capital in business enterprises and promotes efficient use of existing resources.
Market Size: Government's policy of insuring the uninsured has gradually pushed insurance penetration in the country and proliferation of insurance schemes. Gross premiums written in India reached Rs 5.53 trillion (US$ 94.48 billion) in FY18, with Rs 4.58 trillion (US$ 71.1 billion) from life insurance and Rs 1.51 trillion (US$ 23.38 billion) from non-life insurance. Overall insurance penetration (premiums as % of GDP) in India reached 3.69 per cent in 2017 from 2.71 per cent in 2001.In FY19 (up to October 2018), premium from new life insurance business increased 3.66 per cent year-on-year to Rs 1.09 trillion (US$ 15.46 billion). In FY19 (up to October 2018), gross direct premiums of non-life insurers reached Rs 962.05 billion (US$ 13.71 billion), showing a year-on-year growth rate of 12.40 per cent.
Investments and Recent Developments:
The following are some of the major investments and developments in the Indian insurance sector. 1. 2. 3.
4. 5.
6. 7.
As of November 2018, HDFC Ergo is in advanced talks to acquire Apollo Munich Health Insurance at a valuation of around Rs 2,600 crores (US$ 370.05 million). In October 2018, Indian e-commerce major Flipkart entered the insurance space in partnership with Bajaj Allianz to offer mobile insurance. In August 2018, a consortium of West Bridge Capital, billionaire investor Mr. Rakesh Jhunjunwala announced that it would acquire India’s largest health insurer Star Health and Allied Insurance in a deal estimated at around US$ 1 billion. In September 2018, HDFC Ergo launched ‘E@Secure’ a cyber insurance policy for individuals. Insurance sector companies in India raised around Rs 434.3 billion (US$ 6.7 billion) through public issues in 2017. In 2017, insurance sector in India saw 10 merger and acquisition (M&A) deals worth US$ 903 million. India's leading bourse Bombay Stock Exchange (BSE) will set up a joint venture with Ebix Inc to build a robust insurance distribution network in the country through a new distribution exchange platform.
The Government of India has been seen taking a number of initiatives to boost the insurance industry. Some of them are as follows:
➢ In September 2018, National Health Protection Scheme was launched under Ayushman Bharat to provide coverage of up to Rs 500,000 (US$ 7,723) to more than 100 million vulnerable families. The scheme is expected to increase penetration of health insurance in India from 34 per cent to 50 per cent. ➢ Over 47.9 million famers were benefitted under Pradhan Mantri Fasal Bima Yojana (PMFBY) in 2017-18. ➢ The Insurance Regulatory and Development Authority of India (IRDAI) plans to issue redesigned initial public offering (IPO) guidelines for insurance companies in India, which are to looking to divest equity through the IPO route. ➢ IRDAI has allowed insurers to invest up to 10 per cent in additional tier 1 (AT1) bonds that are issued by banks to augment their tier 1 capital, in order to expand the pool of eligible investors for the banks.
✓ After liberalisation, the insurance industry has recorded significant growth. The Indian insurance industry is expected to grow to US$ 280 billion by FY2020, owing to the solid economic growth and higher personal disposable incomes in the country. ✓ Overall insurance penetration in India reached 3.69 per cent in 2017 from 2.71 per cent in 2001. Gross premiums written in India reached Rs 5.53 trillion (US$ 94.48 billion) in FY18, with Rs 4.58 trillion (US$ 71.1 billion) from life insurance and Rs 1.51 trillion (US$ 23.38 billion) from non-life insurance. ✓ Over FY12–18, premium from new business of life insurance companies in India have increased at a 14.44 per cent CAGR to reach Rs 1.94 trillion (US$ 30.1 billion) and non-life insurance premiums (in Rs) increased at a CAGR of 16.65 per cent. In FY19 (up to Dec 2018), premium from new life insurance business increased 2.41 per cent year-on-year to Rs 1.42 trillion (US$ 19.62 billion). ✓ In FY19 (up to Nov 2018), gross direct premiums of non-life insurers reached Rs 1.09 trillion (US$ 15.07 billion), showing a year-on-year growth rate of 13.14 per cent. ✓ Going forward, increasing life expectancy, favourable savings and greater employment in the private sector is expected to fuel demand for pension plans. Likewise, strong growth in the automotive industry over the next decade would be a key driver for the motor insurance market.
FUTURE ANALYSIS: The future looks promising for the life insurance industry with several changes in regulatory framework which will lead to further change in the way the industry conducts its business and engages with its customers. The overall insurance industry is expected to reach US$ 280 billion by 2020. Life insurance industry in the country is expected to grow by 12-15 per cent annually for the next three to five years. Demographic factors such as growing middle class, young insurable population and growing awareness of the need for protection and retirement planning will support the growth of Indian life insurance. Going forward, increasing life expectancy, favourable savings and greater employment in the private sector is expected to fuel demand for pension plans. Likewise, strong growth in the automotive industry over the next decade would be a key driver for the motor insurance market. Exchange Rate Used: INR 1 = US$ 0.0149 as on June 29, 2018
references ✓ Media Reports ✓ Press Releases, Press Information Bureau, Union Budget 2017-18 ✓ Insurance Regulatory and Development Authority of India (IRDA), Crisil ✓ Banking and Insurance- Dr. O.P. Gupta and Sudhir Kumar Sharma, Sahitya Bhawan Publications ✓ Wikipedia ✓ Slideshare